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Money talks: 5 tips for teaching kids about personal finance

bay fed child money
Help guide your child in the general direction of financial literacy with five tips from SantaCruz County financial institution, Bay Federal Credit Union.
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Imagine two teens walk into a big-box store to buy themselves a top-of-the-line laptop. One doesn’t have money saved, but he does have a credit card and an idea of what computer he’d like based on ads he’s seen on TikTok. The other has a robust savings account, a debit card, and an idea of what computer he wants based on cost comparisons he did while researching his big purchase. Which do you think will leave in the best financial situation?

If you guessed Teen #2, you’d be right. While no child is exactly the same as another, they all have one thing in common: They need to understand the basics of money to flourish in life.

home lifestyle
According to surveys, few parents (less than 15%) ever discuss managing student loans, preparing for retirement, or applying for auto or home loans with their kids.
(Getty Images)

In the United States, 47% of adults say they typically live paycheck to paycheck, according to a 2021 poll by the National Endowment for Financial Education. That means that nearly half of adult Americans are not prepared to handle an unexpected mid-size expense, such as a car repair or a medical bill.

As soon as the laptop example above becomes the purchase of a vehicle, an education, or a home, the stakes are raised. That’s why it’s important to start teaching your child about personal finance early.

Few parents (less than 15%) ever discuss managing student loans, preparing for retirement, or applying for auto or home loans with their kids, according to a recent survey.

Mother and daughter at home using laptop for online shopping
According to a 2021 poll, 47% of adults in the US say they typically live paycheck to paycheck. That means that nearly half of adult Americans are not prepared to handle an unexpected mid-size expense.
(Getty Images)

The good news is that you don’t need to be perfect. You just need to help guide your child in the general direction of financial literacy. Let kids know that you are always open to talking about money and answering their questions. And if you don’t know the answer? You can always research together.

Here’s a collection of topics to explore with your child:

1. Earning

Encourage your child to think creatively about earning money, and help them understand their own earning potential.

  • Have fun – Selling lemonade, walking a neighbor’s dog, or recycling cans and bottles are all simple ways for kids to earn money and have a good time doing it.
  • Talk about it — Put your own work in terms they can understand, such as how many hours you need to go the office to afford a train ride together at Roaring Camp.
  • Show them — Establish a weekly allowance in exchange for completing chores. Once a week, give them the amount in cash so they can see the fruits of their labor.

2. Saving

Kids like to do things that make them happy, and there are lots ways to add happiness to saving.

  • Have fun — To create a joyful experience around depositing money into a piggy bank or a Children’s Savings Account like those offered by Bay Federal Credit Union, use lots of praise and cute stickers for positive reinforcement.
  • Talk about it — Ask children what they want, and talk about how saving can help them reach their goals. Whether it’s for Legos or lollipops, kids can be highly motivated savers if it’s for something they really want.
  • Show them — Use a clear piggy bank or a star chart so your child can see their progress.

3. Spending

Spending can be confusing to kids, especially when much of their parents’ purchases may be done electronically. Use cash to build an understanding of how far a dollar will go.

  • Have fun — If your pre-teen wants to go to the Santa Cruz Beach Boardwalk with friends, give them some spending money in cash. This will empower them to make money decisions, and they’ll need to budget to make it last.
  • Talk about it — Exactly what are you doing when you tap your phone or card to pay? To kids, it may look as simple as waving a magic wand to get what you want. Print out a credit card statement and go over recent purchases together.
  • Show them — Live on a cash budget for a month, and let them count the money that remains each week. Do something fun together if there’s some left over.

4. Borrowing

Lessons about borrowing money can leave a sour taste in your little one’s mouth, and that can be a good thing.

  • Have fun — If your teen is considering taking out loans for college, have them choose two careers they think they might like after school. Have them do the math and cost compare how long it would take them to break even.
  • Talk about it — If your child wants to lend money to a friend, caution that they may never get it back. Then, let them do it and see what happens.
  • Show them — If your child wants an advance on their allowance, agree but charge them a small fee that you take from their next allowance. Before you know it, they won’t be visiting the Bank of Dad as often.

5. Investing

As mentioned above, going over how to save for retirement is not at the top of many parenting to-do lists, but the topic is important for life-long financial stability.

  • Have fun – Even elementary school-age children can tell you what they like — Anna and Elsa, anyone? Let them buy one share of Disney for their birthday present, and check in on it once a week to see what it does.
  • Talk — Parents don’t need to have all the answers, and this is a time to consult a trained professional. Teach your child what the word fiduciary means and schedule an appointment for them to sit down with a financial advisor.
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Bay Federal Credit Union was started when local school teachers pooled their money together to start a credit union. That investment has grown through an amazing journey of involvement (evolution) into the area’s largest locally-owned financial institution, with over $1.5 billion in assets.

Bay Federal provides full service financial products and solutions to Santa Cruz, Monterey, and San Benito counties. Whether a community member is looking to buy a home, purchase a car, save some money, or access the latest in banking technology, our local and friendly employees are here to help.

Additionally, Bay Federal provides free financial education resources directly and through a partnership with GreenPath Financial Wellness.